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Chapter 30

Intellectual Property

LEARNING OBJECTIVES

After reading this chapter, you should understand the following:

1. The principal kinds of intellectual property
2. The difference between patents and trade secrets, and why a company

might choose to rely on trade secrets rather than obtain a patent
3. What copyrights are, how to obtain them, and how they differ from

trademarks
4. Why some “marks” may not be eligible for trademark protection, and

how to obtain trademark protection for those that are

Few businesses of any size could operate without being able to protect their rights
to a particular type of intangible personal property: intellectual property1. The
major forms of intellectual property are patents, copyrights, and trademarks.
Unlike tangible personal property (machines, inventory) or real property (land,
office buildings), intellectual property is formless. It is the product of the human
intellect that is embodied in the goods and services a company offers and by which
the company is known.

A patent2 is a grant from government that gives an inventor the exclusive right to
make, use, and sell an invention for a period of twenty years from the date of filing
the application for a patent. A copyright3 is the right to exclude others from using
or marketing forms of expression. A trademark4 is the right to prevent others from
using a company’s product name, slogan, or identifying design. Other forms of
intellectual property are trade secrets (particular kinds of information of
commercial use to a company that created it) and right of publicity (the right to
exploit a person’s name or image). Note that the property interest protected in each
case is not the tangible copy of the invention or writing—not the machine with a
particular serial number or the book lying on someone’s shelf—but the invention or
words themselves. That is why intellectual property is said to be intangible: it is a
right to exclude any others from gaining economic benefit from your own
intellectual creation. In this chapter, we examine how Congress, the courts, and the

1. Intangible personal property
whose major forms are patents,
copyrights, and trademarks.

2. A grant from government that
gives an inventor the exclusive
right to make, use, and sell an
invention for a period of
twenty years from the date of
filing the application for a
patent.

3. The legal right given “authors”
to prevent others from copying
the expression embodied in a
protected work.

4. Defined by the federal Lanham
Act of 1946 as “any word,
name, symbol, or device or any
combination thereof adopted
and used by a manufacturer or
merchant to identify his goods
and distinguish them from
goods manufactured or sold by
others.”

1262

Patent and Trademark Office have worked to protect the major types of intellectual
property.

Chapter 30 Intellectual Property

1263

30.1 Patents

LEARNING OBJECTIVES

1. Explain why Congress would grant exclusive monopolies (patents) for
certain periods of time.

2. Describe what kinds of things may be patentable and what kinds of
things may not be patentable.

3. Explain the procedures for obtaining a patent, and how patent rights
may be an issue where the invention is created by an employee.

4. Understand who can sue for patent infringement, on what basis, and
with what potential remedies.

Source of Authority and Duration

Patent and copyright law are federal, enacted by Congress under the power given
by Article I of the Constitution “to promote the Progress of Science and useful Arts,
by securing for limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries.” Under current law, a patent gives an inventor
exclusive rights to make, use, or sell an invention for twenty years. (If the patent is
a design patent—protecting the appearance rather than the function of an
item—the period is fourteen years.) In return for this limited monopoly, the
inventor must fully disclose, in papers filed in the US Patent and Trademark Office
(PTO), a complete description of the invention.

Patentability
What May Be Patented

The patent law says that “any new and useful process, machine, manufacture, or
composition of matter, or any new and useful improvement thereof” may be
patented.35 United States Code, Section 101. A process5 is a “process, art or
method, and includes a new use of a known process, machine, manufacture,
composition of matter, or material.”35 United States Code, Section 101. A process
for making rolled steel, for example, qualifies as a patentable process under the
statute. A machine6 is a particular apparatus for achieving a certain result or
carrying out a distinct process—lathes, printing presses, motors, and the cotton gin
are all examples of the hundreds of thousands of machines that have received US
patents since the first Patent Act in 1790. A manufacture7 is an article or a product,
such as a television, an automobile, a telephone, or a lightbulb. A composition of
matter8 is a new arrangement of elements so that the resulting compound, such as

5. A “means devised for the
production of a given
result”—for example, a process
for making steel.

6. A particular apparatus for
achieving a certain result or
carrying out a distinct
process—lathes, printing
presses, motors, and the cotton
gin are all examples of
machines.

7. An article or product, such as a
television, automobile,
telephone, and lightbulb.

8. A new arrangement of
elements such that the
resulting compound, such as a
metal alloy, is not found in
nature.

Chapter 30 Intellectual Property

1264

a metal alloy, is not found in nature. In Commissioner of Patents v.
Chakrabarty,Commissioner of Patents v. Chakrabarty, 444 U.S. 1028 (1980). the Supreme
Court said that even living organisms—in particular, a new “genetically
engineered” bacterium that could “eat” oil spills—could be patented. The
Chakrabarty decision has spawned innovation: a variety of small biotechnology firms
have attracted venture capitalists and other investors.

According to the PTO, gene sequences are patentable subject matter, provided they
are isolated from their natural state and processed in a way that separates them
from other molecules naturally occurring with them. Gene patenting, always
controversial, generated new controversy when the PTO issued a patent to Human
Genome Sciences, Inc. for a gene found to serve as a platform from which the AIDS
virus can infect cells of the body. Critics faulted the PTO for allowing “ownership”
of a naturally occurring human gene and for issuing patents without requiring a
showing of the gene’s utility. New guidelines from the PTO followed in 2000; these
focused on requiring the applicant to make a strong showing on the utility aspect of
patentability and somewhat diminished the rush of biotech patent requests.

There are still other categories of patentable subjects. An improvement is an
alteration of a process, machine, manufacture, or composition of matter that
satisfies one of the tests for patentability given later in this section. New, original
ornamental designs for articles of manufacture are patentable (e.g., the shape of a
lamp); works of art are not patentable but are protected under the copyright law.
New varieties of cultivated or hybridized plants are also patentable, as are
genetically modified strains of soybean, corn, or other crops.

What May Not Be Patented

Many things can be patented, but not (1) the laws of nature, (2) natural phenomena,
and (3) abstract ideas, including algorithms (step-by-step formulas for
accomplishing a specific task).

One frequently asked question is whether patents can be issued for computer
software. The PTO was reluctant to do so at first, based on the notion that computer
programs were not “novel”—the software program either incorporated automation
of manual processes or used mathematical equations (which were not patentable).
But in 1998, the Supreme Court held in Diamond v. DiehrDiamond v. Diehr, 450 U.S. 175
(1981). that patents could be obtained for a process that incorporated a computer
program if the process itself was patentable.

A business process can also be patentable, as the US Court of Appeals for the Federal
Circuit ruled in 1998 in State Street Bank and Trust v. Signature Financial Group, Inc.State

Chapter 30 Intellectual Property

30.1 Patents 1265

Street Bank and Trust v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998).
Signature Financial had a patent for a computerized accounting system that
determined share prices through a series of mathematical calculations that would
help manage mutual funds. State Street sued to challenge that patent. Signature
argued that its model and process was protected, and the court of appeals upheld it
as a “practical application of a mathematical, algorithm, formula, or calculation,”
because it produces a “useful, concrete and tangible result.” Since State Street, many
other firms have applied for business process patents. For example, Amazon.com
obtained a business process patent for its “one-click” ordering system, a method of
processing credit-card orders securely. (But see Amazon.com v.
Barnesandnoble.com,Amazon.com v. Barnesandnoble.com, Inc., 239 F.3d 1343 (Fed. Cir.
2001). in which the court of appeals rejected Amazon’s challenge to
Barnesandnoble.com using its Express Land one-click ordering system.)

Tests for Patentability

Just because an invention falls within one of the categories of patentable subjects, it
is not necessarily patentable. The Patent Act and judicial interpretations have
established certain tests that must first be met. To approve a patent application, the
PTO (as part of the Department of Commerce) will require that the invention,
discovery, or process be novel, useful, and nonobvious in light of current
technology.

Perhaps the most significant test of patentability is that of obviousness. The act says
that no invention may be patented “if the differences between the subject matter
sought to be patented and the prior art are such that the subject matter as a whole
would have been obvious at the time the invention was made to a person having
ordinary skill in the art to which said subject matter pertains.” This provision of the
law has produced innumerable court cases, especially over improvement patents,
when those who wish to use an invention on which a patent has been issued have
refused to pay royalties on the grounds that the invention was obvious to anyone
who looked.

Procedures for Obtaining a Patent

In general, the United States (unlike many other countries) grants a patent right to
the first person to invent a product or process rather than to the first person to file
for a patent on that product or process. As a practical matter, however, someone
who invents a product or process but does not file immediately should keep
detailed research notes or other evidence that would document the date of
invention. An inventor who fails to apply for a patent within a year of that date
would forfeit the rights granted to an inventor who had published details of the
invention or offered it for sale. But until the year has passed, the PTO may not issue

Chapter 30 Intellectual Property

30.1 Patents 1266

a patent to X if Y has described the invention in a printed publication here or
abroad or the invention has been in public use or on sale in this country.

An inventor cannot obtain a patent automatically; obtaining a patent is an
expensive and time-consuming process, and the inventor will need the services of a
patent attorney, a highly specialized practitioner. The attorney will help develop
the required specification9, a description of the invention that gives enough detail
so that one skilled in the art will be able to make and use the invention. After
receiving an application, a PTO examiner will search the records and accept or
reject the claim. Usually, the attorney will negotiate with the examiner and will
rewrite and refine the application until it is accepted. A rejection may be appealed,
first to the PTO’s Board of Appeals and then, if that fails, to the federal district court
in the District of Columbia or to the US Court of Appeals for the Federal Circuit, the
successor court to the old US Court of Customs and Patent Appeals.

Once a patent application has been filed, the inventor or a company to which she
has assigned the invention may put the words “patent pending” on the invention.
These words have no legal effect. Anyone is free to make the invention as long as
the patent has not yet been issued. But they do put others on notice that a patent
has been applied for. Once the patent has been granted, infringers may be sued
even if the infringed has made the product and offered it for sale before the patent
was granted.

In today’s global market, obtaining a US patent is important but is not usually
sufficient protection. The inventor will often need to secure patent protection in
other countries as well. Under the Paris Convention for the Protection of Industrial
Property (1883), parties in one country can file for patent or trademark protection
in any of the other member countries (172 countries as of 2011). The World Trade
Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS) established standards for protecting intellectual property rights (patents,
trademarks, and copyrights) and provides that each member nation must have laws
that protect intellectual property rights with effective access to judicial systems for
pursuing civil and criminal penalties for violations of such rights.

Patent Ownership

The patent holder is entitled to make and market the invention and to exclude
others from doing so. Because the patent is a species of property, it may be
transferred. The inventor may assign part or all of his interest in the patent or keep
the property interest and license others to manufacture or use the invention in
return for payments known as royalties. The license may be exclusive with one
licensee, or the inventor may license many to exploit the invention. One important

9. A description of the invention
that gives enough detail so that
one skilled in the art will be
able to make and use the
invention.

Chapter 30 Intellectual Property

30.1 Patents 1267

limitation on the inventor’s right to the patent interest is the so-called shop right.
This is a right created by state courts on equitable grounds giving employers a
nonexclusive royalty-free license to use any invention made by an employee on
company time and with company materials. The shop right comes into play only
when a company has no express or implied understanding with its employees. Most
corporate laboratories have contractual agreements with employees about who
owns the invention and what royalties will be paid.

Infringement and Invalidity Suits

Suits for patent infringement can arise in three ways: (1) the patent holder may
seek damages and an injunction against the infringer in federal court, requesting
damages for royalties and lost profits as well; (2) even before being sued, the
accused party may take the patent holder to court under the federal Declaratory
Judgment Act, seeking a court declaration that the patent is invalid; (3) the patent
holder may sue a licensee for royalties claimed to be due, and the licensee may
counterclaim that the patent is invalid. Such a suit, if begun in state court, may be
removed to federal court.

In a federal patent infringement lawsuit, the court may grant the winning party
reimbursement for attorneys’ fees and costs. If the infringement is adjudged to be
intentional, the court can triple the amount of damages awarded. Prior to 2006,
courts were typically granting permanent injunctions to prevent future
infringement. Citing eBay, Inc. v. Merc Exchange, LLC,eBay, Inc. v. Merc Exchange, LLC,
546 U.S. 388 (2006). the Supreme Court ruled that patent holders are not
automatically entitled to a permanent injunction against infringement during the
life of the patent. Courts have the discretion to determine whether justice requires
a permanent injunction, and they may conclude that the public interest and
equitable principles may be better satisfied with compensatory damages only.

Proving infringement can be a difficult task. Many companies employ engineers to
“design around” a patent product—that is, to seek ways to alter the product to such
an extent that the substitute product no longer consists of enough of the elements
of the invention safeguarded by the patent. However, infringing products,
processes, or machines need not be identical; as the Supreme Court said in Sanitary
Refrigerator Co. v. Winers,Sanitary Refrigerator Co. v. Winers, 280 U.S. 30 (1929). “one
device is an infringement of another…if two devices do the same work in
substantially the same way, and accomplish substantially the same result…even
though they differ in name, form, or shape.” This is known as the doctrine of
equivalents10. In an infringement suit, the court must choose between these two
extremes: legitimate “design around” and infringement through some equivalent
product.

10. The judicial doctrine that
infringing products, processes,
or machines need not be
identical.

Chapter 30 Intellectual Property

30.1 Patents 1268

An infringement suit can often be dangerous because the defendant will almost
always assert in its answer that the patent is invalid. The plaintiff patent holder
thus runs the risk that his entire patent will be taken away from him if the court
agrees. In ruling on validity, the court may consider all the tests, such as prior art
and obviousness, discussed in Section 30.1.2 “Patentability” and rule on these
independently of the conclusions drawn by the PTO.

Patent Misuse

Although a patent is a monopoly granted to the inventor or his assignee or licensee,
the monopoly power is legally limited. An owner who misuses the patent may find
that he will lose an infringement suit. One common form of misuse is to tie the
patented good to some unpatented one—for example, a patented movie projector
that will not be sold unless the buyer agrees to rent films supplied only by the
manufacturer of the movie projector, or a copier manufacturer that requires buyers
to purchase plain paper from it. As we will see in Chapter 26 “Antitrust Law”,
various provisions of the federal antitrust laws, including, specifically, Section 3 of
the Clayton Act, outlaw certain kinds of tying arrangements. Another form of
patent misuse is a provision in the licensing agreement prohibiting the
manufacturer from also making competing products. Although the courts have held
against several other types of misuse, the general principle is that the owner may
not use his patent to restrain trade in unpatented goods.

KEY TAKEAWAY

Many different “things” are patentable, include gene sequences, business
processes, and any other “useful invention.” The US Patent and Trademark
Office acts on initial applications and may grant a patent to an applicant.
The patent, which allows a limited-time monopoly, is for twenty years. The
categories of patentable things include processes, machines, manufactures,
compositions of matter, and improvements. Ideas, mental processes,
naturally occurring substances, methods of doing business, printed matter,
and scientific principles cannot be patented. Patent holders may sue for
infringement and royalties from an infringer user.

Chapter 30 Intellectual Property

30.1 Patents 1269

EXERCISES

1. Calera, Inc. discovers a way to capture carbon dioxide emissions at a
California power plant and use them to make cement. This is a win for
the power company, which needs to reduce its carbon dioxide emissions,
and a win for Calera. Calera decides to patent this invention. What kind
of patent would this be? A machine? A composition of matter? A
manufacture?

2. In your opinion, what is the benefit of allowing companies to isolate
genetic material and claim a patent? What kind of patent would this be?
A machine? A composition of matter? A manufacture?

3. How could a “garage inventor,” working on her own, protect a
patentable invention while yet demonstrating it to a large company that
could bring the invention to market?

Chapter 30 Intellectual Property

30.1 Patents 1270

30.2 Trade Secrets

LEARNING OBJECTIVES

1. Describe the difference between trade secrets and patents, and explain
why a firm might prefer keeping a trade secret rather than obtaining a
patent.

2. Understand the dimensions of corporate espionage and the impact of
the federal Economic Espionage Act.

Definition of Trade Secrets

A patent is an invention publicly disclosed in return for a monopoly. A trade
secret11 is a means to a monopoly that a company hopes to maintain by preventing
public disclosure. Why not always take out a patent? There are several reasons. The
trade secret might be one that is not patentable, such as a customer list or an
improvement that does not meet the tests of novelty or nonobviousness. A patent
can be designed around; but if the trade secret is kept, its owner will be the
exclusive user of it. Patents are expensive to obtain, and the process is extremely
time consuming. Patent protection expires in twenty years, after which anyone is
free to use the invention, but a trade secret can be maintained for as long as the
secret is kept.

However, a trade secret is valuable only so long as it is kept secret. Once it is
publicly revealed, by whatever means, anyone is free to use it. The critical
distinction between a patent and a trade secret is this: a patent gives its owner the
right to enjoin anyone who infringes it from making use of it, whereas a trade
secret gives its “owner” the right to sue only the person who improperly took it or
revealed it.

According to the Restatement of Torts, Section 757, Comment b, a trade secret may
consist of

any formula, pattern, device or compilation of information which is used in one’s
business, and which gives him an opportunity to obtain an advantage over
competitors who do not know or use it. It may be a formula for a chemical
compound, a process of manufacturing, treating or preserving materials, a pattern
for a machine or other device, or a list of customers.…A trade secret is a process or
device for continuous use in the operation of a business. Generally it relates to the

11. A process, chemical formula,
list, plan, or mechanism known
only to an employer and those
employees who need to know
in order to use it in the
business.

Chapter 30 Intellectual Property

1271

production of goods, as, for example, a machine or formula for the production of an
article.

Other types of trade secrets are customer information, pricing data, marketing
methods, sources of supply, and secret technical know-how.

Elements of Trade Secrets

To be entitled to protection, a trade secret must be (1) original and (2) secret.

Originality

The trade secret must have a certain degree of originality, although not as much as
would be necessary to secure a patent. For example, a principle or technique that is
common knowledge does not become a protectable trade secret merely because a
particular company taught it to one of its employees who now wants to leave to
work for a competitor.

Secrecy

Some types of information are obviously secret, like the chemical formula that is
jealously guarded through an elaborate security system within the company. But
other kinds of information might not be secret, even though essential to a
company’s business. For instance, a list of suppliers that can be devised easily by
reading through the telephone directory is not secret. Nor is a method secret
simply because someone develops and uses it, if no steps are taken to guard it. A
company that circulates a product description in its catalog may not claim a trade
secret in the design of the product if the description permits someone to do
“reverse engineering.” A company that hopes to keep its processes and designs
secret should affirmatively attempt to do so—for example, by requiring employees
to sign a nondisclosure agreement covering the corporate trade secrets with which
they work. However, a company need not go to every extreme to guard a trade
secret.

Trade-secrets espionage has become a big business. To protect industrial secrets, US
corporations spend billions on security arrangements. The line between
competitive intelligence gathering and espionage can sometimes be difficult to
draw. The problem is by no means confined to the United States; companies and
nations all over the world have become concerned about theft of trade secrets to
gain competitive advantage, and foreign governments are widely believed to be
involved in espionage and cyberattacks.

Chapter 30 Intellectual Property

30.2 Trade Secrets 1272

Economic Espionage Act

The Economic Espionage Act (EEA) of 1996 makes the theft or misappropriation of a
trade secret a federal crime. The act is aimed at protecting commercial information
rather than classified national defense information. Two sorts of activities are
criminalized. The first section of the actEconomic Espionage Act, 18 United States
Code, Section 1831(a) (1996) criminalizes the misappropriation of trade secrets
(including conspiracy to misappropriate trade secrets and the subsequent
acquisition of such misappropriated trade secrets) with the knowledge or intent
that the theft will benefit a foreign power. Penalties for violation are fines of up to
US$500,000 per offense and imprisonment of up to fifteen years for individuals, and
fines of up to US$10 million for organizations.

The second sectionEconomic Espionage Act, 18 United States Code, Section 1832
(1996). criminalizes the misappropriation of trade secrets related to or included in a
product that is produced for or placed in interstate (including international)
commerce, with the knowledge or intent that the misappropriation will injure the
owner of the trade secret. Penalties for violation are imprisonment for up to ten
years for individuals (no fines) and fines of up to US$5 million for organizations.

In addition to these specific penalties, the fourth section of the EEAEconomic
Espionage Act, 18 United States Code, Section 1834 (1996). also requires criminal
forfeiture of (1) any proceeds of the crime and property derived from proceeds of
the crime and (2) any property used, or intended to be used, in commission of the
crime.

The EEA authorizes civil proceedings by the Department of Justice to enjoin
violations of the act but does not create a private cause of action. This means that
anyone believing they have been victimized must go through the US attorney
general in order to obtain an injunction.

The EEA is limited to the United States and has no extraterritorial application
unless (1) the offender is a US company or a citizen operating from abroad against a
US company or (2) an act in furtherance of the espionage takes place in the United
States. Other nations lack such legislation, and some may actively support
industrial espionage using both their national intelligence services. The US Office of
the National Counterintelligence Executive publishes an annual report, mandated
by the US Congress, on foreign economic collection and industrial espionage, which
outlines these espionage activities of many foreign nations.

Chapter 30 Intellectual Property

30.2 Trade Secrets 1273

Right of Employees to Use Trade Secrets

A perennial source of lawsuits in the trade secrets arena is the employee who is
hired away by a competitor, allegedly taking trade secrets along with him.
Companies frequently seek to prevent piracy by requiring employees to sign
confidentiality agreements. An agreement not to disclose particular trade secrets
learned or developed on the job is generally enforceable. Even without an
agreement, an employer can often prevent disclosure under principles of agency
law. Sections 395 and 396 of the Restatement (Second) of Agency suggest that it is
an actionable breach of duty to disclose to third persons information given
confidentially during the course of the agency. However, every person is held to
have a right to earn a living. If the rule were strictly applied, a highly skilled person
who went to another company might be barred from using his knowledge and skills.
The courts do not prohibit people from using elsewhere the general knowledge and
skills they developed on the job. Only specific trade secrets are protected.

To get around this difficulty, some companies require their employees to sign
agreements not to compete. But unless the agreements are limited in scope and
duration to protect a company against only specific misuse of trade secrets, they
are unenforceable.

KEY TAKEAWAY

Trade secrets, if they can be kept, have indefinite duration and thus greater
potential value than patents. Trade secrets can be any formula, pattern,
device, process, or compilation of information to be used in a business.
Customer information, pricing data, marketing methods, sources of supply,
and technical know-how could all be trade secrets. State law has protected
trade secrets, and federal law has provided criminal sanctions for theft of
trade secrets. With the importance of digitized information, methods of
theft now include computer hacking; theft of corporate secrets is a
burgeoning global business that often involves cyberattacks.

Chapter 30 Intellectual Property

30.2 Trade Secrets 1274

EXERCISES

1. Wu Dang, based in Hong Kong, hacks into the Hewlett-Packard database
and “steals” plans and specifications for HP’s latest products. The HP
server is located in the United States. He sells this information to a
Chinese company in Shanghai. Has he violated the US Economic
Espionage Act?

2. What are the advantages of keeping a formula as a trade secret rather
than getting patent protection?

Chapter 30 Intellectual Property

30.2 Trade Secrets 1275

30.3 Copyright

LEARNING OBJECTIVES

1. Describe and explain copyrights, how to obtain one, and how they differ
from trademarks.

2. Explain the concept of fair use and describe its limits.

Definition and Duration

Copyright is the legal protection given to “authors” for their “writings.” Copyright
law is federal; like patent law, its source lies in the Constitution. Copyright protects
the expression of ideas in some tangible form, but it does not protect the ideas
themselves. Under the 1976 Copyright Act as amended, a copyright in any work
created after January 1, 1978, begins when the work is fixed in tangible form—for
example, when a book is written down or a picture is painted—and generally lasts
for the life of the author plus 70 years after his or her death. This is similar to
copyright protection in many countries, but in some countries, the length of
copyright protection is the life of the author plus 50 years. For copyrights owned by
publishing houses, done as works for hire, common copyright expires 95 years from
the date of publication or 120 years from the date of creation, whichever is first. For
works created before 1978, such as many of Walt Disney’s movies and cartoons, the
US Sonny Bono Copyright Term Extension Act of 1998 provided additional
protection of up to 95 years from publication date. Thus works created in 1923 by
Disney would not enter the public domain until 2019 or after, unless the copyright
had expired prior to 1998 or unless the Disney company released the work into the
public domain. In general, after expiration of the copyright, the work enters the
public domain12.

In 1989, the United States signed the Berne Convention, an international copyright
treaty. This law eliminated the need to place the symbol © or the word Copyright or
the abbreviation Copr. on the work itself. Copyrights can be registered with the US
Copyright Office in Washington, DC.

Protected Expression

The Copyright Act protects a variety of “writings,” some of which may not seem
written at all. These include literary works (books, newspapers, and magazines),
music, drama, choreography, films, art, sculpture, and sound recordings. Since

12. Once a copyright has expired,
the material enters the public
domain, meaning that no one
can claim exclusive rights in
the material.

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copyright covers the expression and not the material or physical object, a book may
be copyrighted whether it is on paper, microfilm, tape, or computer disk.

Rights Protected by the Copyright Act
Preventing Copying

A copyright gives its holder the right to prevent others from copying his or her
work. The copyright holder has the exclusive right to reproduce the work in any
medium (paper, film, sound recording), to perform it (e.g., in the case of a play), or
to display it (a painting or film). A copyright also gives its holder the exclusive right
to prepare derivative works based on the copyrighted work. Thus a playwright
could not adapt to the stage a novelist’s book without the latter’s permission.

Fair Use

One major exception to the exclusivity of copyrights is the fair use doctrine13.
Section 107 of the Copyright Act provides as follows:

Fair use of a copyrighted work, including such use by reproduction in copies or
phonorecords or by any other means specified by section 106 of the copyright, for
purposes such as criticism, comment, news reporting, teaching (including multiple
copies for classroom use), scholarship, or research, is not an infringement of
copyright. In determining whether the use made of a work in any particular case is
a fair use, the factors to be considered shall include–

(1) the purpose and character of the use, including whether such use is of a
commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted
work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted
work.17 United States Code, Section 107.

These are broad guidelines. Accordingly, any copying could be infringement, and
fair use could become a question of fact on a case-by-case basis. In determining fair
use, however, courts have often considered the fourth factor (effect of the use upon
the potential market for the copyrighted work) to be the most important.

13. Use of copyrighted material in
criticism, comment, news
reporting, teaching (including
multiple copies for classroom
use), scholarship, or research
that does not significantly
reduce the market for the
copyrighted material.

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Clear examples of fair use would be when book reviewers or writers quote passages
from copyrighted books. Without fair use, most writing would be useless because it
could not readily be discussed. But the doctrine of fair use grew more troublesome
with the advent of plain-paper copiers and is now even more troublesome with
electronic versions of copyrighted materials that are easily copied and distributed.
The 1976 act took note of the new copier technology, listing “teaching (including
multiple copies for classroom use)” as one application of fair use. The Copyright
Office follows guidelines specifying just how far the copying may go—for example,
multiple copies of certain works may be made for classroom use, but copies may not
be used to substitute for copyrighted anthologies.

Infringement

Verbatim use of a copyrighted work is easily provable. The more difficult question
arises when the copyrighted work is altered in some way. As in patent law, the
standard is one of substantial similarity.

Copyrightability Standards

To be subject to copyright, the writing must be “fixed” in some “tangible medium of
expression.” A novelist who composes a chapter of her next book in her mind and
tells it to a friend before putting it on paper could not stop the friend from rushing
home, writing it down, and selling it (at least the federal copyright law would offer
no protection; some states might independently offer a legal remedy, however).

The work also must be creative, at least to a minimal degree. Words and phrases,
such as names, titles, and slogans, are not copyrightable; nor are symbols or designs
familiar to the public. But an author who contributes her own creativity—like
taking a photograph of nature—may copyright the resulting work, even if the basic
elements of the composition were not of her making.

Finally, the work must be “original,” which means simply that it must have
originated with the author. The law does not require that it be novel or unique. This
requirement was summarized pithily by Judge Learned Hand: “If by some magic a
man who had never known it were to compose anew Keats’s Ode on a Grecian Urn,
he would be an author, and, if he copyrighted it, others might not copy that poem,
though they might of course copy Keats’s.”Sheldon v. Metro-Goldwyn Pictures Corp., 81
F.2d 49 (2d Cir. 1936). Sometimes the claim is made that a composer, for example,
just happened to compose a tune identical or strikingly similar to a copyrighted
song; rather than assume the unlikely coincidence that Judge Hand hypothesized,
the courts will look for evidence that the alleged copier had access to the
copyrighted song. If he did—for example, the song was frequently played on the

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air—he cannot defend the copying with the claim that it was unconscious, because
the work would not then have been original.

Section 102 of the Copyright Act excludes copyright protection for any “idea,
procedure, process, system, method of operation, concept, principle, or discovery,
regardless of the form in which it is described, explained, illustrated, or
embodied.”17 United States Code, Section 102.

Einstein copyrighted books and monographs he wrote on the theory of relativity,
but he could not copyright the famous formula E = mc2, nor could he prevent others
from writing about the theory. But he could protect the particular way in which his
ideas were expressed. In general, facts widely known by the public are not
copyrightable, and mathematical calculations are not copyrightable. Compilations
of facts may be copyrightable, if the way that they are coordinated or arranged
results in a work that shows some originality. For example, compiled information
about yachts listed for sale may qualify for copyright protection.BUC International
Corp. v. International Yacht Council, Ltd., 489 F.3d 1129 (11th Cir. 2007).

One of the most troublesome recent questions concerning expression versus ideas is
whether a computer program may be copyrighted. After some years of uncertainty,
the courts have accepted the copyrightability of computer programs.Apple Computer,
Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983). Now the courts are
wrestling with the more difficult question of the scope of protection: what
constitutes an “idea” and what constitutes its mere “expression” in a program.

How far the copyright law will protect particular software products is a hotly
debated topic, sparked by a federal district court’s ruling in 1990 that the “look and
feel” of Lotus 1-2-3’s menu system is copyrightable and was in fact infringed by
Paperback Software’s VP-Planner, a competing spreadsheet.Lotus Development Corp.
v. Paperback Software International, 740 F.Supp. 37 (D. Mass. 1990). The case has led
some analysts to “fear that legal code, rather than software code, is emerging as the
factor that will determine which companies and products will dominate the
1990s.”Peter H. Lewis, “When Computing Power Is Generated by the Lawyers,” New
York Times, July 22 1990.

Who May Obtain a Copyright?

With one important exception, only the author may hold the initial copyright,
although the author may assign it or license any one or more of the rights conveyed
by the copyright. This is a simple principle when the author has written a book or
painted a picture. But the law is unclear in the case of a motion picture or a sound
recording. Is the author the script writer, the producer, the performer, the director,

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the engineer, or someone else? As a practical matter, all parties involved spell out
their rights by contract.

The exception, which frequently covers the difficulties just enumerated, is for
works for hire. Any person employed to write—a journalist or an advertising jingle
writer, for example—is not the “author.” For purposes of the statute, the employer
is the author and may take out the copyright. When the employee is in fact an
“independent contractor” and the work in question involves any one of nine types
(book, movies, etc.) spelled out in the Copyright Act, the employer and the creator
must spell out their entitlement to the copyright in a written agreement.Community
for Creative Non-Violence v. Reid, 109 S.Ct. 2166 (1989).

Obtaining a Copyright

Until 1978, a work could not be copyrighted unless it was registered in the
Copyright Office or was published and unless each copy of the work carried a
copyright notice, consisting of the word Copyright, the abbreviation Copr., or the
common symbol ©, together with the date of first publication and the name of the
copyright owner. Under the 1976 act, copyright became automatic whenever the
work was fixed in a tangible medium of expression (e.g., words on paper, images on
film or videotape, sound on tape or compact disc), even if the work remained
unpublished or undistributed. However, to retain copyright protection, the notice
had to be affixed once the work was “published” and copies circulated to the public.
After the United States entered the Berne Convention, an international treaty
governing copyrights, Congress enacted the Berne Implementation Act, declaring
that, effective in 1989, notice, even after publication, was no longer required.

Notice does, however, confer certain benefits. In the absence of notice, a copyright
holder loses the right to receive statutory damages (an amount stated in the
Copyright Act and not required to be proved) if someone infringes the work. Also,
although it is no longer required, an application and two copies of the work (for
deposit in the Library of Congress) filed with the Copyright Office, in Washington,
DC, will enable the copyright holder to file suit should the copyright be infringed.
Unlike patent registration, which requires elaborate searching of Patent and
Trademark Office (PTO) records, copyright registration does not require a reading
of the work to determine whether it is an original creation or an infringement of
someone else’s prior work. But copyright registration does not immunize the holder
from an infringement suit. If a second work has been unlawfully copied from an
earlier work, the second author’s copyright will not bar the infringed author from
collecting damages and obtaining an injunction.

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Computer Downloads and the Digital Millennium Copyright Act

The ubiquity of the Internet and the availability of personal computers with large
capacities have greatly impacted the music business. Sharing of music files took off
in the late 1990s with Napster, which lost a legal battle on copyright and had to
cease doing business. By providing the means by which individuals could copy
music that had been purchased, major record labels were losing substantial profits.
Grokster, a privately owned software company based in the West Indies, provided
peer-to-peer file sharing from 2001 to 2005 until the US Supreme Court’s decision in
MGM Studios, Inc. v. Grokster, Ltd.MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005).

For computers with the Microsoft operating system, the Court disallowed the peer-
to-peer file sharing, even though Grokster claimed it did not violate any copyright
laws because no files passed through its computers. (Grokster had assigned certain
user computers as “root supernodes” that acted as music hubs for the company and
was not directly involved in controlling any specific music-file downloads.)

Grokster had argued, based on Sony v. Universal Studios,Sony v. Universal Studios, 464
U.S. 417 (1984). that the sale of its copying equipment (like the Betamax
videocassette recorders at issue in that case) did not constitute contributory
infringement “if the product is widely used for legitimate, unobjectionable
purposes.” Plaintiffs successfully argued that the Sony safe-harbor concept requires
proof that the noninfringing use is the primary use in terms of the product’s utility.

The Digital Millennium Copyright Act (DMCA), passed into law in 1998, implements
two 1996 treaties of the World Intellectual Property Organization. It criminalizes
production and sale of devices or services intended to get around protective
measures that control access to copyrighted works. In addition, the DMCA
heightens the penalties for copyright infringement on the Internet. The DMCA
amended Title 17 of the United States Code to extend the reach of copyright, while
limiting the liability of the providers of online services for copyright infringement
by their users.

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30.3 Copyright 1281

KEY TAKEAWAY

Copyright is the legal protection given to “authors” for their “writings.” It
protects ideas in fixed, tangible form, not ideas themselves. Copyright
protection can extend as long as 120 years from the date of creation or
publication. Expression found in literary works, music, drama, film, art,
sculpture, sound recordings, and the like may be copyrighted. The fair use
doctrine limits the exclusivity of copyright in cases where scholars, critics,
or teachers use only selected portions of the copyrighted material in a way
that is unlikely to affect the potential market for or value of the copyrighted
work.

EXERCISES

1. Explain how a list could be copyrightable.
2. An author wrote a novel, Brunch at Bruno’s, in 1961. She died in 1989, and

her heirs now own the copyright. When do the rights of the heirs come
to an end? That is, when does Brunch at Bruno’s enter the public domain?

3. Keith Bradsher writes a series of articles on China for the New York Times
and is paid for doing so. Suppose he wants to leave the employ of the
Times and be a freelance writer. Can he compile his best articles into a
book, Changing Times in China, and publish it without the New York Times’s
permission? Does it matter that he uses the word Times in his proposed
title?

4. What kind of file sharing of music is now entirely legal? Shaunese
Collins buys a Yonder Mountain String Band CD at a concert at Red
Rocks in Morrison, Colorado. With her iMac, she makes a series of CDs
for her friends. She does this six times. Has she committed six copyright
violations?

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30.4 Trademarks

LEARNING OBJECTIVES

1. Understand what a trademark is and why it deserves protection.
2. Know why some “marks” may not be eligible for trademark protection,

and how to obtain trademark protection for those that are.
3. Explain what “blurring” and “tarnishment” are and what remedies are

available to the holder of the mark.

Definitions of Trademarks

A trademark is defined in the federal Lanham Act of 1946 as “any word, name,
symbol, or device or any combination thereof adopted and used by a manufacturer
or merchant to identify his goods and distinguish them from goods manufactured
or sold by others.”15 United States Code, Section 1127.

Examples of well-known trademarks are Coca-Cola, Xerox, and Apple. A service
mark14 is used in the sale or advertising of services to identify the services of one
person and distinguish them from the services of others. Examples of service marks
are McDonald’s, BP, and Hilton. A certification mark15 is used in connection with
many products “to certify regional or other origin, material, mode of manufacture,
quality, accuracy or other characteristics of such goods or services or that the work
or labor on the goods or services was performed by members of a union or other
organization.” Examples are the Good Housekeeping Seal of Approval and UL
(Underwriters Laboratories, Inc., approval mark). Unlike other forms of trademark,
the owner of the certification mark (e.g., Good Housekeeping, or the Forest
Stewardship Council’s FSC mark) is not the owner of the underlying product.

Extent of Trademark Protection
Kinds of Marks

Trademarks and other kinds of marks may consist of words and phrases, pictures,
symbols, shapes, numerals, letters, slogans, and sounds. Trademarks are a part of
our everyday world: the sounds of a radio or television network announcing itself
(NBC, BBC), the shape of a whiskey bottle (Haig & Haig’s Pinch Bottle), a series of
initials (GE, KPMG, IBM), or an animal’s warning growl (MGM’s lion).

14. Used in the sale or advertising
of services to identify the
services of one person and
distinguish them from the
services of others.

15. A mark placed on a product or
used in connection with a
service that signifies the
product or service as having
met the standard set by the
certifying entity.

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Limitations on Marks

Although trademarks abound, the law limits the subjects that may fall into one of
the defined categories. Not every word or shape or symbol will be protected in an
infringement action. To qualify for protection, a trademark must be used to identify
and distinguish. The courts employ a four-part test: (1) Is the mark so arbitrary and
fanciful that it merits the widest protection? (2) Is it “suggestive” enough to
warrant protection without proof of secondary meaning? (3) Is it “descriptive,”
warranting protection if secondary meaning is proved? (4) Is the mark generic and
thus unprotectable?

These tests do not have mechanical answers; they call for judgment. Some marks
are wholly fanciful, clearly identify origin of goods, and distinguish them from
others—Kodak, for example. Other marks may not be so arbitrary but may
nevertheless be distinctive, either when adopted or as a result of advertising—for
example, Crest, as the name of a toothpaste.

Marks that are merely descriptive of the product are entitled to protection only if it
can be shown that the mark has acquired secondary meaning16. This term reflects
a process of identification on the mark in the public mind with the originator of the
product. Holiday Inn was initially deemed too descriptive: an inn where people
might go on holiday. But over time, travelers came to identify the source of the
Great Sign and the name Holiday Inn as the Holiday Inn Corporation in Memphis,
and secondary meaning was granted. Holiday Inn could thus protect its mark
against other innkeepers, hoteliers, and such; however, the trademark protection
for the words Holiday Inn was limited to the corporation’s hotel and motel business,
and no other.

Certain words and phrases may not qualify at all for trademark protection. These
include generic terms like “straw broom” (for a broom made of straw) and ordinary
words like “fast food.” In one case, a federal appeals court held that the word “Lite”
is generic and cannot be protected by a beer manufacturer to describe a low-calorie
brew.Miller Brewing Co. v. Falstaff Brewing Corp., 655 F.2d 5 (1st Cir. 1981). Donald
Trump’s effort to trademark “You’re fired!” and Paris Hilton’s desire to trademark
“That’s hot!” were also dismissed as being generic.

Deceptive words will not be accepted for registration. Thus the US Patent and
Trademark Office (PTO) denied registration to the word Vynahyde because it
suggested that the plastic material to which it was applied came from animal skin.
Geographic terms are descriptive words and may not be used as protected
trademarks unless they have acquired a secondary meaning, such as Hershey when
used for chocolates. (Hershey’s chocolates are made in Hershey, Pennsylvania.) A

16. A descriptive or generic word
or phrase that would otherwise
not qualify for trademark
protection may be eligible once
it acquires secondary
meaning—that is, that the
origin of the goods or services
becomes identified with a
particular source or provider
and the mark makes that
connection in the public’s
mind.

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30.4 Trademarks 1284

design that reflects a common style cannot be protected in a trademark to exclude
other similar designs in the same tradition. Thus the courts have ruled that a
silverware pattern that is a “functional feature” of the “baroque style” does not
qualify for trademark protection. Finally, the Lanham Act denies federal
registration to certain marks that fall within categories of words and shapes,
including the following: the flag; the name, portrait, or signature of any living
person without consent, or of a deceased US president during the lifetime of his
widow; and immoral, deceptive, or scandalous matter (in an earlier era, the phrase
“Bubby Trap” for brassieres was denied registration).

Dilution, Tarnishment, and Blurring

Under the federal Trademark Dilution Act of 1995, companies with marks that
dilute the value of a senior mark may be liable for damages. The act provides that
owners of marks of significant value have property rights that should not be
eroded, blurred, tarnished, or diluted in any way by another. But as a plaintiff, the
holder of the mark must show (1) that it is a famous mark, (2) that the use of a
similar mark is commercial, and (3) that such use causes dilution of the distinctive
quality of the mark. Thus a T-shirt maker who promotes a red-and-white shirt
bearing the mark Buttweiser may be liable to Anheuser-Busch, or a pornographic
site called Candyland could be liable to Parker Brothers, the board game company.
Interesting cases have already been brought under this act, including a case
brought by Victoria’s Secret against a small adult store in Kentucky called Victor’s
Little Secret. Notice that unlike most prior trademark law, the purpose is not to
protect the consumer from confusion as to the source or origin of the goods or
services being sold; for example, no one going to the Candyland site would think
that Parker Brothers was the source.

Acquiring Trademark Rights

For the first time in more than forty years, Congress, in 1988, changed the way in
which trademarks can be secured. Under the Lanham Act, the fundamental means
of obtaining a trademark was through use. The manufacturer or distributor actually
must have placed the mark on its product—or on related displays, labels, shipping
containers, advertisements, and the like—and then have begun selling the product.
If the product was sold in interstate commerce, the trademark was entitled to
protection under the Lanham Act (or if not, to protection under the common law of
the state in which the product was sold).

Under the Trademark Law Revision Act of 1988, which went into effect in 1989,
trademarks can be obtained in advance by registering with the PTO an intention to
use the mark within six months (the applicant can gain extensions of up to thirty
more months to put the mark into use). Once obtained, the trademark will be

Chapter 30 Intellectual Property

30.4 Trademarks 1285

protected for ten years (before the 1988 revision, a federal trademark remained
valid for twenty years); if after that time the mark is still being used, the
registration can be renewed. Obtaining a trademark registration lies between
obtaining patents and obtaining copyrights in difficulty. The PTO will not routinely
register a trademark; it searches its records to ensure that the mark meets several
statutory tests and does not infringe another mark. Those who feel that their own
marks would be hurt by registration of a proposed mark may file an opposition
proceeding17 with the PTO. Until 1990, the office received about 77,000 applications
each year. With the change in procedure, some experts predicted that applications
would rise by 30 percent.

In many foreign countries, use need not be shown to obtain trademark registration.
It is common for some people in these countries to register marks that they expect
to be valuable so that they can sell the right to use the mark to the company that
established the mark’s value. Companies that expect to market abroad should
register their marks early.

Loss of Rights

Trademark owners may lose their rights if they abandon the mark, if a patent or
copyright expires on which the mark is based, or if the mark becomes generic. A
mark is abandoned if a company goes out of business and ceases selling the product.
Some marks are based on design patents; when the patent expires, the patent
holder will not be allowed to extend the patent’s duration by arguing that the
design or name linked with the design is a registrable trademark.

The most widespread difficulty that a trademark holder faces is the prospect of too
much success: if a trademark comes to stand generically for the product itself, it
may lose exclusivity in the mark. Famous examples are aspirin, escalator, and
cellophane. The threat is a continual one. Trademark holders can protect
themselves from their marks’ becoming generic in several ways.

1. Use a descriptive term along with the trademark. Look on a jar of
Vaseline and you will see that the label refers to the contents as
Vaseline petroleum jelly.

2. Protest generic use of the mark in all publications by writing letters
and taking out advertisements.

3. Always put the words Trademark, Registered Trademark, or the
symbol ® (meaning “registered”) next to the mark itself, which should
be capitalized.

17. Those who feel that their own
marks would be hurt by
registration of a proposed
mark may file an opposition
proceeding in the US Patent
and Trademark Office.

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KEY TAKEAWAY

Trademark protection is federal, under the Lanham Act. Branding of
corporate logos, names, and products is essential to business success, and
understanding trademarks is pivotal to branding. A “mark” must be
distinctive, arbitrary, or fanciful to merit protection: this means that it must
not be generic or descriptive. Marks can be words, symbols, pictures,
slogans, sounds, phrases, and even shapes. In the United States, rights to
marks are obtained by registration and intent to use in commerce and must
be renewed every ten years.

EXERCISES

1. How will Google protect its trademark, assuming that people begin using
“google” as a verb substitute for “Internet search,” just like people
began using the word “cellophane” for all brands of plastic wrap?

2. Do a small amount of web searching and find out what “trade dress”
protection is, and how it differs from trademark protection.

3. LexisNexis is a brand for a database collection offered by Mead Data
Central. Lexus is a high-end automobile. Can Lexus succeed in getting
Mead Data Central to stop using “Lexis” as a mark?

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30.5 Cases

Fair Use in Copyright

Elvis Presley Enterprises et al. v. Passport Video et al.

349 F.3d 622 (9th Circuit Court of Appeals, 2003)

TALLMAN, CIRCUIT JUDGE:

Plaintiffs are a group of companies and individuals holding copyrights in various
materials relating to Elvis Presley. For example, plaintiff SOFA Entertainment, Inc.,
is the registered owner of several Elvis appearances on The Ed Sullivan Show. Plaintiff
Promenade Trust owns the copyright to two television specials featuring Elvis: The
Elvis 1968 Comeback Special and Elvis Aloha from Hawaii.…Many Plaintiffs are in the
business of licensing their copyrights. For example, SOFA Entertainment charges
$10,000 per minute for use of Elvis’ appearances on The Ed Sullivan Show.

Passport Entertainment and its related entities (collectively “Passport”) produced
and sold The Definitive Elvis, a 16-hour video documentary about the life of Elvis
Presley. The Definitive Elvis sold for $99 at retail. Plaintiffs allege that thousands of
copies were sent to retail outlets and other distributors. On its box, The Definitive
Elvis describes itself as an all-encompassing, in-depth look at the life and career of a
man whose popularity is unrivaled in the history of show business and who
continues to attract millions of new fans each year.…

The Definitive Elvis uses Plaintiffs’ copyrighted materials in a variety of ways. With
the video footage, the documentary often uses shots of Elvis appearing on television
while a narrator or interviewee talks over the film. These clips range from only a
few seconds in length to portions running as long as 30 seconds. In some instances,
the clips are the subject of audio commentary, while in other instances they would
more properly be characterized as video “filler” because the commentator is
discussing a subject different from or more general than Elvis’ performance on a
particular television show. But also significant is the frequency with which the
copyrighted video footage is used. The Definitive Elvis employs these clips, in many
instances, repeatedly. In total, at least 5% to 10% of The Definitive Elvis uses Plaintiffs’
copyrighted materials.

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Use of the video footage, however, is not limited to brief clips.…Thirty-five percent
of his appearances on The Ed Sullivan Show is replayed, as well as three minutes from
The 1968 Comeback Special.

* * *

Plaintiffs sued Passport for copyright infringement.…Passport, however, asserts
that its use of the copyrighted materials was “fair use” under 17 U.S.C. § 107.
Plaintiffs moved for a preliminary injunction, which was granted by the district
court after a hearing. The district court found that Passport’s use of Plaintiffs’
copyrighted materials was likely not fair use. The court enjoined Passport from
selling or distributing The Definitive Elvis. Passport timely appeals.

* * *

We first address the purpose and character of Passport’s use of Plaintiffs’
copyrighted materials. Although not controlling, the fact that a new use is
commercial as opposed to non-profit weighs against a finding of fair use. Harper &
Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 562, 85 L. Ed. 2d 588, 105 S.Ct. 2218
(1985). And the degree to which the new user exploits the copyright for commercial
gain—as opposed to incidental use as part of a commercial enterprise—affects the
weight we afford commercial nature as a factor. More importantly for the first fair-
use factor, however, is the “transformative” nature of the new work. Specifically,
we ask “whether the new work…merely supersedes the objects of the original
creation, or instead adds something new, with a further purpose or different
character, altering the first with new expression, meaning, or message.…” The more
transformative a new work, the less significant other inquiries, such as
commercialism, become.

* * *

The district court below found that the purpose and character of The Definitive Elvis
will likely weigh against a finding of fair use. We cannot say, based on this record,
that the district court abused its discretion.

First, Passport’s use, while a biography, is clearly commercial in nature. But more
significantly, Passport seeks to profit directly from the copyrights it uses without a
license. One of the most salient selling points on the box of The Definitive Elvis is that
“Every Film and Television Appearance is represented.” Passport is not advertising
a scholarly critique or historical analysis, but instead seeks to profit at least in part
from the inherent entertainment value of Elvis’ appearances on such shows as The

Chapter 30 Intellectual Property

30.5 Cases 1289

Steve Allen Show, The Ed Sullivan Show, and The 1968 Comeback Special. Passport’s claim
that this is scholarly research containing biographical comments on the life of Elvis
is not dispositive of the fair use inquiry.

Second, Passport’s use of Plaintiffs’ copyrights is not consistently transformative.
True, Passport’s use of many of the television clips is transformative because the
clips play for only a few seconds and are used for reference purposes while a
narrator talks over them or interviewees explain their context in Elvis’ career. But
voice-overs do not necessarily transform a work.…

It would be impossible to produce a biography of Elvis without showing some of his
most famous television appearances for reference purposes. But some of the clips
are played without much interruption, if any. The purpose of showing these clips
likely goes beyond merely making a reference for a biography, but instead serves
the same intrinsic entertainment value that is protected by Plaintiffs’ copyrights.

* * *

The third factor is the amount and substantiality of the portion used in relation to
the copyrighted work as a whole. This factor evaluates both the quantity of the
work taken and the quality and importance of the portion taken. Regarding the
quantity, copying “may not be excused merely because it is insubstantial with
respect to the infringing work.” Harper & Row, 471 U.S. at 565 (emphasis in original).
But if the amount used is substantial with respect to the infringing work, it is
evidence of the value of the copy-righted work.

Passport’s use of clips from television appearances, although in most cases of short
duration, were repeated numerous times throughout the tapes. While using a small
number of clips to reference an event for biographical purposes seems fair, using a
clip over and over will likely no longer serve a biographical purpose. Additionally,
some of the clips were not short in length. Passport’s use of Elvis’ appearance on
The Steve Allen Show plays for over a minute and many more clips play for more than
just a few seconds.

Additionally, although the clips are relatively short when compared to the entire
shows that are copyrighted, they are in many instances the heart of the work. What
makes these copyrighted works valuable is Elvis’ appearance on the shows, in many
cases singing the most familiar passages of his most popular songs. Plaintiffs are in
the business of licensing these copyrights. Taking key portions extracts the most
valuable part of Plaintiffs’ copyrighted works. With respect to the photographs, the

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entire picture is often used. The music, admittedly, is usually played only for a few
seconds.

* * *

The last, and “undoubtedly the single most important” of all the factors, is the
effect the use will have on the potential market for and value of the copyrighted
works. Harper & Row, 471 U.S. at 566. We must “consider not only the extent of
market harm caused by the particular actions of the alleged infringer, but also
whether unrestricted and widespread conduct of the sort engaged in by the
defendant…would result in a substantially adverse impact on the potential market
for the original.” Campbell, 510 U.S. at 590. The more transformative the new work,
the less likely the new work’s use of copyrighted materials will affect the market for
the materials. Finally, if the purpose of the new work is commercial in nature, “the
likelihood [of market harm] may be presumed.” A&M Records, 239 F.3d at 1016
(quoting Sony, 464 U.S. at 451).

The district court found that Passport’s use of Plaintiffs’ copyrighted materials
likely does affect the market for those materials. This conclusion was not clearly
erroneous.

First, Passport’s use is commercial in nature, and thus we can assume market harm.
Second, Passport has expressly advertised that The Definitive Elvis contains the
television appearances for which Plaintiffs normally charge a licensing fee. If this
type of use became wide-spread, it would likely undermine the market for selling
Plaintiffs’ copyrighted material. This conclusion, however, does not apply to the
music and still photographs. It seems unlikely that someone in the market for these
materials would purchase The Definitive Elvis instead of a properly licensed product.
Third, Passport’s use of the television appearances was, in some instances, not
transformative, and therefore these uses are likely to affect the market because
they serve the same purpose as Plaintiffs’ original works.

* * *

We emphasize that our holding today is not intended to express how we would rule
were we examining the case ab initio as district judges. Instead, we confine our
review to whether the district court abused its discretion when it weighed the four
statutory fair-use factors together and determined that Plaintiffs would likely
succeed on the merits. Although we might view this case as closer than the district
court saw it, we hold there was no abuse of discretion in the court’s decision to
grant Plaintiffs’ requested relief.

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AFFIRMED.

CASE QUESTIONS

1. How would you weigh the four factors in this case? If the trial court had
found fair use, would the appeals court have overturned its ruling?

2. Why do you think that the fourth factor is especially important?
3. What is the significance of the discussion on “transformative” aspects of

the defendant’s product?

Trademark Infringement and Dilution

Playboy Enterprises v. Welles

279 F.3d 796 (9th Circuit Court of Appeals, 2001)

T. G. NELSON, Circuit Judge:

Terri Welles was on the cover of Playboy in 1981 and was chosen to be the Playboy
Playmate of the Year for 1981. Her use of the title “Playboy Playmate of the Year
1981,” and her use of other trademarked terms on her website are at issue in this
suit. During the relevant time period, Welles’ website offered information about and
free photos of Welles, advertised photos for sale, advertised memberships in her
photo club, and promoted her services as a spokesperson. A biographical section
described Welles’ selection as Playmate of the Year in 1981 and her years modeling
for PEI. The site included a disclaimer that read as follows: “This site is neither
endorsed, nor sponsored, nor affiliated with Playboy Enterprises, Inc. PLAYBOY tm
PLAYMATE OF THE YEAR tm AND PLAYMATE OF THE MONTH tm are registered
trademarks of Playboy Enterprises, Inc.”

Wells used (1) the terms “Playboy ”and “Playmate” in the metatags of the website;
(2) the phrase “Playmate of the Year 1981” on the masthead of the website; (3) the
phrases “Playboy Playmate of the Year 1981” and “Playmate of the Year 1981” on
various banner ads, which may be transferred to other websites; and (4) the
repeated use of the abbreviation “PMOY ’81” as the watermark on the pages of the
website. PEI claimed that these uses of its marks constituted trademark
infringement, dilution, false designation of origin, and unfair competition. The
district court granted defendants’ motion for summary judgment. PEI appeals the
grant of summary judgment on its infringement and dilution claims. We affirm in
part and reverse in part.

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A. Trademark Infringement

Except for the use of PEI’s protected terms in the wallpaper of Welles’ website, we
conclude that Welles’ uses of PEI’s trademarks are permissible, nominative uses.
They imply no current sponsorship or endorsement by PEI. Instead, they serve to
identify Welles as a past PEI “Playmate of the Year.”

We articulated the test for a permissible, nominative use in New Kids On The Block v.
New America Publishing, Inc. The band, New Kids On The Block, claimed trademark
infringement arising from the use of their trademarked name by several
newspapers. The newspapers had conducted polls asking which member of the
band New Kids On The Block was the best and most popular. The papers’ use of the
trademarked term did not fall within the traditional fair use doctrine. Unlike a
traditional fair use scenario, the defendant newspaper was using the trademarked
term to describe not its own product, but the plaintiff’s. Thus, the factors used to
evaluate fair use were inapplicable. The use was nonetheless permissible, we
concluded, based on its nominative nature.

We adopted the following test for nominative use:

First, the product or service in question must be one not readily identifiable
without use of the trademark; second, only so much of the mark or marks may be
used as is reasonably necessary to identify the product or service; and third, the
user must do nothing that would, in conjunction with the mark, suggest
sponsorship or endorsement by the trademark holder.

We group the uses of PEI’s trademarked terms into three for the purpose of
applying the test for nominative use.

1. Headlines and banner advertisements.

. . .

The district court properly identified Welles’ situation as one which must… be
excepted. No descriptive substitute exists for PEI’s trademarks in this context.…Just
as the newspapers in New Kids could only identify the band clearly by using its
trademarked name, so can Welles only identify herself clearly by using PEI’s
trademarked title.

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The second part of the nominative use test requires that “only so much of the mark
or marks may be used as is reasonably necessary to identify the product or
service[.]” New Kids provided the following examples to explain this element: “[A]
soft drink competitor would be entitled to compare its product to Coca-Cola or
Coke, but would not be entitled to use Coca-Cola’s distinctive lettering.” Similarly,
in a past case, an auto shop was allowed to use the trademarked term “Volkswagen”
on a sign describing the cars it repaired, in part because the shop “did not use
Volkswagen’s distinctive lettering style or color scheme, nor did he display the
encircled ‘VW’ emblem.” Welles’ banner advertisements and headlines satisfy this
element because they use only the trademarked words, not the font or symbols
associated with the trademarks.

The third element requires that the user do “nothing that would, in conjunction
with the mark, suggest sponsorship or endorsement by the trademark holder.” As
to this element, we conclude that aside from the wallpaper, which we address
separately, Welles does nothing in conjunction with her use of the marks to suggest
sponsorship or endorsement by PEI. The marks are clearly used to describe the title
she received from PEI in 1981, a title that helps describe who she is. It would be
unreasonable to assume that the Chicago Bulls sponsored a website of Michael
Jordan’s simply because his name appeared with the appellation “former Chicago
Bull.” Similarly, in this case, it would be unreasonable to assume that PEI currently
sponsors or endorses someone who describes herself as a “Playboy Playmate of the
Year in 1981.” The designation of the year, in our case, serves the same function as
the “former” in our example. It shows that any sponsorship or endorsement
occurred in the past.

For the foregoing reasons, we conclude that Welles’ use of PEI’s marks in her
headlines and banner advertisements is a nominative use excepted from the law of
trademark infringement.

2. Metatags

Welles includes the terms “playboy” and “playmate” in her metatags. Metatags
describe the contents of a website using keywords. Some search engines search
metatags to identify websites relevant to a search. Thus, when an internet searcher
enters “playboy” or “playmate” into a search engine that uses metatags, the results
will include Welles’ site. Because Welles’ metatags do not repeat the terms
extensively, her site will not be at the top of the list of search results. Applying the
three-factor test for nominative use, we conclude that the use of the trademarked
terms in Welles’ metatags is nominative.

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As we discussed above with regard to the headlines and banner advertisements,
Welles has no practical way of describing herself without using trademarked terms.
In the context of metatags, we conclude that she has no practical way of identifying
the content of her website without referring to PEI’s trademarks.

. . .

Precluding their use would have the unwanted effect of hindering the free flow of
information on the internet, something which is certainly not a goal of trademark
law. Accordingly, the use of trademarked terms in the metatags meets the first part
of the test for nominative use.…We conclude that the metatags satisfy the second
and third elements of the test as well. The metatags use only so much of the marks
as reasonably necessary and nothing is done in conjunction with them to suggest
sponsorship or endorsement by the trademark holder. We note that our decision
might differ if the metatags listed the trademarked term so repeatedly that Welles’
site would regularly appear above PEI’s in searches for one of the trademarked
terms.

3. Wallpaper/watermark.

The background, or wallpaper, of Welles’ site consists of the repeated abbreviation
“PMOY ’81,” which stands for “Playmate of the Year 1981.” Welles’ name or likeness
does not appear before or after “PMOY ’81.” The pattern created by the repeated
abbreviation appears as the background of the various pages of the website.
Accepting, for the purposes of this appeal, that the abbreviation “PMOY” is indeed
entitled to protection, we conclude that the repeated, stylized use of this
abbreviation fails the nominative use test.

The repeated depiction of “PMOY ‘81” is not necessary to describe Welles. “Playboy
Playmate of the Year 1981” is quite adequate. Moreover, the term does not even
appear to describe Welles—her name or likeness do not appear before or after each
“PMOY ’81.” Because the use of the abbreviation fails the first prong of the
nominative use test, we need not apply the next two prongs of the test.

Because the defense of nominative use fails here, and we have already determined
that the doctrine of fair use does not apply, we remand to the district court. The
court must determine whether trademark law protects the abbreviation “PMOY,” as
used in the wallpaper.

B. Trademark Dilution [At this point, the court considers and rejects PEI’s claim for
trademark dilution.]

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Conclusion

For the foregoing reasons, we affirm the district court’s grant of summary judgment
as to PEI’s claims for trademark infringement and trademark dilution, with the sole
exception of the use of the abbreviation “PMOY.” We reverse as to the abbreviation
and remand for consideration of whether it merits protection under either an
infringement or a dilution theory.

CASE QUESTIONS

1. Do you agree with the court’s decision that there is no dilution here?
2. If PMOY is not a registered trademark, why does the court discuss it?
3. What does “nominative use” mean in the context of this case?
4. In business terms, why would PEI even think that it was losing money,

or could lose money, based on Welles’s use of its identifying marks?

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30.6 Summary and Exercises

Summary

The products of the human mind are at the root of all business, but they are legally protectable only to a certain
degree. Inventions that are truly novel may qualify for a twenty-year patent; the inventor may then prohibit
anyone from using the art (machine, process, manufacture, and the like) or license it on his own terms. A
business may sue a person who improperly gives away its legitimate trade secrets, but it may not prevent others
from using the unpatented trade secret once publicly disclosed. Writers or painters, sculptors, composers, and
other creative artists may generally protect the expression of their ideas for the duration of their lives plus
seventy years, as long as the ideas are fixed in some tangible medium. That means that they may prevent others
from copying their words (or painting, etc.), but they may not prevent anyone from talking about or using their
ideas. Finally, one who markets a product or service may protect its trademark or service or other mark that is
distinctive or has taken on a secondary meaning, but may lose it if the mark becomes the generic term for the
goods or services.

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1297

EXERCISES

1. Samuel Morse filed claims in the US Patent Office for his invention of
the telegraph and also for the “use of the motive power of the electric or
galvanic current…however developed, for marking or printing
intelligible characters, signs or letters at any distances.” For which
claim, if any, was he entitled to a patent? Why?

2. In 1957, an inventor dreamed up and constructed a certain new kind of
computer. He kept his invention a secret. Two years later, another
inventor who conceived the same machine filed a patent application.
The first inventor, learning of the patent application, filed for his own
patent in 1963. Who is entitled to the patent, assuming that the
invention was truly novel and not obvious? Why?

3. A large company discovered that a small company was infringing one of
its patents. It wrote the small company and asked it to stop. The small
company denied that it was infringing. Because of personnel changes in
the large company, the correspondence file was lost and only
rediscovered eight years later. The large company sued. What would be
the result? Why?

4. Clifford Witter was a dance instructor at the Arthur Murray Dance
Studios in Cleveland. As a condition of employment, he signed a contract
not to work for a competitor. Subsequently, he was hired by the Fred
Astaire Dancing Studios, where he taught the method that he had
learned at Arthur Murray. Arthur Murray sued to enforce the
noncompete contract. What would be result? What additional
information, if any, would you need to know to decide the case?

5. Greenberg worked for Buckingham Wax as its chief chemist, developing
chemical formulas for products by testing other companies’ formulas
and modifying them. Brite Products bought Buckingham’s goods and
resold them under its own name. Greenberg went to work for Brite,
where he helped Brite make chemicals substantially similar to the ones
it had been buying from Buckingham. Greenberg had never made any
written or oral commitment to Buckingham restricting his use of the
chemical formulas he developed. May Buckingham stop Greenberg from
working for Brite? May it stop him from working on formulas learned
while working at Buckingham? Why?

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SELF-TEST QUESTIONS

1. Which of the following cannot be protected under patent,
copyright, or trademark law?

a. a synthesized molecule
b. a one-line book title
c. a one-line advertising jingle
d. a one-word company name

2. Which of the following does not expire by law?

a. a closely guarded trade secret not released to the public
b. a patent granted by the US Patent and Trademark Office
c. a copyright registered in the US Copyright Office
d. a federal trademark registered under the Lanham Act

3. A sculptor casts a marble statue of a three-winged bird. To
protect against copying, the sculptor can obtain which of the
following?

a. a patent
b. a trademark
c. a copyright
d. none of the above

4. A stock analyst discovers a new system for increasing the value
of a stock portfolio. He may protect against use of his system by
other people by securing

a. a patent
b. a copyright
c. a trademark
d. none of the above

5. A company prints up its customer list for use by its sales staff.
The cover page carries a notice that says “confidential.” A rival
salesman gets a copy of the list. The company can sue to recover
the list because the list is

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30.6 Summary and Exercises 1299

a. patented
b. copyrighted
c. a trade secret
d. none of the above

SELF-TEST ANSWERS

1. b
2. a
3. c
4. d
5. c

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• Licensing

Chapter 30 Intellectual Property
30.1 Patents
30.2 Trade Secrets
30.3 Copyright
30.4 Trademarks
30.5 Cases
30.6 Summary and Exercises